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COVID-19 Update: As businesses begin to reposition in line with the current climate, we have seen a slight reduction in MVL referrals. However, once accountancy firms and their clients have adjusted to new working practices and have taken stock of their current and future outlook, we do expect MVL numbers to steadily increase between now and April 2021.
There has been an influx of businesses looking for MVLs as a result of the uncertainty surrounding the future of Entrepreneurs Tax Relief in the run up to the Budget 2020. And even now after the announcement means nearly 80% of businesses won’t be affected, when we add in the impact that the Coronavirus pandemic has had on so many businesses, a large number are choosing to continue down the route of liquidation.
Since last year, the number of MVLs has shown great growth. Nationwide, there were 2,577 appointments between 1st January and 20th March 2019, and during the same period in 2020 there have already been 3689.
SFP has seen an exponential growth in leads for MVLs during the same period, so figures for MVLs this year are likely to continue rising once new working processes have levelled out in the wake of COVID-19. For the Jan-Mar period in 2019 there were over a hundred leads with more than 60 appointments; this year so far we have had a fourfold increase.
We have significantly increased referrals and appointments compared to the whole market, with a 156% increase as opposed to the 43% increase in the market as a whole.
What’s driving the growth in numbers?
As mentioned, there was some concern over how the 2020 Budget might change Entrepreneurs Tax Relief and thus affect many small businesses. While it hasn’t been cut entirely as was the fear, the reduction from £10million to £1million may yet cause some businesses to feel the need to liquidate.
As is the nature of the contracting business, most companies will have less than £1m in the bank at any one time so it’s still possible to make the most of ETR as it now stands.
More and more contractors are realising that the benefits of Entrepreneurs Tax Relief can make up for the potentially diminishing contractor industry. If there’s one silver lining to the cloud that is today’s situation, it’s how Entrepreneurs Tax Relief can still help.
The potential changes to IR35 on 6th April 2020 were also due to be a factor and caused many contractors to begin the process of seeking out an MVL. But now that those reforms have been pushed to come into effect in 2021 instead, what does that mean for businesses?
Right now, it means a few good things:
- Businesses can use their limited companies in their current contracts
- Lots of contracts outside of IR35 will be freely available
- Staying in a contract role has benefits, mainly that the pay is significantly higher, but also flexibility of contracting remains
- The employers or end clients now have more time to prepare for next year, and maybe even sort out their contract terms to ensure they can continue to take on contractors with less risk
In short, the overall impact of these changes on contractor businesses will be smaller than if they had come to place in April 2020. So while the proposed amends are still going to come into effect, there’s now more time to plan accordingly in the run up and potentially receive significant tax relief along the way.
With the ETR amends and delay on IR35 changes, you can stay in your contractor status for a further year to build the funds in your business bank account, and if necessary go through an MVL at the end of this year and pay only 10% tax on up to £1m.
However, if the current climate means you feel a more immediate need to liquidate, this is still a viable option.
Get in touch
Are you looking for an insolvency practitioner but struggling to find one at the moment? Many IPs are inundated with requests in the current circumstances due to high demand. You need not look any further than SFP; we have plenty of capacity to handle insolvencies.
Get in touch with us today for a chat about the unique needs of your business, and see how we can help.
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